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Outsourcing Governance: Why Insight Beats Oversight

Though supply chain outsourcing has been generally beneficial, there’s one recurring problem: a lack of a proper governance structure that provides consistent management, policies, and decision-making rights. Good governance is good business. When done right, the governance process can help both parties achieve their ultimate goal—a more successful enterprise.

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This is an excerpt of the original article. It was written for the January-February 2012 edition of Supply Chain Management Review. The full article is available to current subscribers.

January-February 2012

The potential risk of supply chain disruption has never been greater. In fact, it’s become the new normal, say authors and educators Robert Trent and Greg Schlegel. The problem for many companies is that they are ill prepared to handle a disruption should one occur. This article argues for a new set of risk management techniques in a world where heightened supply chain risk has become a fact of business life.
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For many years, companies have looked to outsourcing as a way to reduce costs and increase supply chain productivity. But according to studies by the Corporate Executive Board, up to 90 percent of the value of an outsourcing deal can be eroded because of poor relationship governance. The Outsourcing Center, an internet site for supply chain thought leadership, agrees. The center reports that poor governance plays a role in outsourcing failures as much as 62 percent of the time. The value erosion or “savings leakage” that can result from poor governance is, in fact, a pressing problem for companies today.

Proper governance in an outsourcing arrangement is critical because the supplier or service provider becomes an extension of the company doing the outsourcing. A sound governance structure provides consistent management along with cohesive policies, processes, and decision rights that enable parties to work together effectively and collaboratively over the life of the agreement. Perhaps most importantly, good governance maximizes the potential for successful contract implementation.

This article explores the nature of good governance within the context of Vested Outsourcing, a concept that is being researched and advanced through work at the University of Tennessee.

 

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From the January-February 2012 edition of Supply Chain Management Review.

January-February 2012

The potential risk of supply chain disruption has never been greater. In fact, it’s become the new normal, say authors and educators Robert Trent and Greg Schlegel. The problem for many companies is that they are…
Browse this issue archive.
Download a PDF file of the January-February 2012 issue.

Download Article PDF

For many years, companies have looked to outsourcing as a way to reduce costs and increase supply chain productivity. But according to studies by the Corporate Executive Board, up to 90 percent of the value of an outsourcing deal can be eroded because of poor relationship governance. The Outsourcing Center, an internet site for supply chain thought leadership, agrees. The center reports that poor governance plays a role in outsourcing failures as much as 62 percent of the time. The value erosion or “savings leakage” that can result from poor governance is, in fact, a pressing problem for companies today.

Proper governance in an outsourcing arrangement is critical because the supplier or service provider becomes an extension of the company doing the outsourcing. A sound governance structure provides consistent management along with cohesive policies, processes, and decision rights that enable parties to work together effectively and collaboratively over the life of the agreement. Perhaps most importantly, good governance maximizes the potential for successful contract implementation.

This article explores the nature of good governance within the context of Vested Outsourcing, a concept that is being researched and advanced through work at the University of Tennessee.

SUBSCRIBERS: Click here to download PDF of the full article.

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